Supreme Court Rules on Availability of Injunctive Relief in Patent Cases
May 15, 2006. The Supreme Court issued its opinion [12 pages in PDF] in eBay v. MercExhange, vacating the judgment of the U.S. Court of Appeals (FedCir). The Court held that the traditional four factor framework that guides a court's decision whether to grant an injunction applies in patent cases.
MercExchange is the holder of U.S. Patent No. 5,845,265, tilted "Consignment Nodes", U.S. Patent No. 6,085,176, titled "Method and apparatus for using search agents to search plurality of markets for items", and U.S. Patent No. 6,202,051, titled "Facilitating internet commerce through internetworked auctions". The 265 patent is a business method patent for an electronic market designed to facilitate the sale of goods between private individuals by establishing a central authority to promote trust among participants.
MercExchange filed a complaint in U.S. District Court (EDVa) against eBay alleging infringement of the three patents. The District Court found willful infringement of some claims, and awarded damages, but not injunctive relief. District Court's opinion is reported at 275 F.Supp. 2d 695.
Both eBay and MercExchange appealed. The Court of Appeals issued its opinion [31 pages in PDF] on March 16, 2005, and an errata [1 page in PDF] on March 22, 2005. The Court of Appeals reversed the denial of injunctive relief. It wrote that there is "no reason to depart from the general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances." This opinion is also reported at 401 F.3d 1323.
The Court of Appeals, quoting from its 1989 opinion in Richardson v. Suzuki Motor Co., 868 F.2d 1226, wrote that "Because the ``right to exclude recognized in a patent is but the essence of the concept of property,´´ the general rule is that a permanent injunction will issue once infringement and validity have been adjudged."
eBay filed a petition for writ of certiorari with the Supreme Court. Numerous individuals and groups filed amicus briefs in support of the petition, and on the merits.
The Supreme Court granted certiorari on November 28, 2005. See, story titled "Supreme Court to Consider Availability of Injunctive Relief in Patent Cases" in TLJ Daily E-Mail Alert No. 1,261, November 29, 2005.
The Supreme Court vacated the judgment of the Court of Appeals, and remanded to the District Court.
Justice Clarence Thomas wrote the opinion of the Court. He wrote that "a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction." (Citing Weinberger v. Romero-Barcelo, 456 U. S. 305 (1982).)
That is, injunctions should not issue automatically following a finding of infringement.
"These familiar principles apply with equal force to disputes arising under the Patent Act", wrote Thomas. Moreover, while the Federal Circuit has departed from this, Thomas concluded that "Nothing in the Patent Act indicates that Congress intended such a departure. To the contrary, the Patent Act expressly provides that injunctions ``may´´ issue ``in accordance with the principles of equity.´´"
The relevant statute, which is codified at 35 U.S.C. § 283, provides in full that "The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable."
Thomas concluded that "we take no position on whether permanent injunctive relief should or should not issue in this particular case, or indeed in any number of other disputes arising under the Patent Act. We hold only that the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards."
Thomas wrote for a unanimous court. However, Chief Justice Roberts wrote a concurring opinion in which Justices Scalia and Ginsburg joined. Also, Justice Kennedy wrote a concurring opinion in which Justices Stevens, Souter and Breyer joined.
Roberts wrote that "From at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases. This "long tradition of equity practice" is not surprising, given the difficulty of protecting a right to exclude through monetary remedies that allow an infringer to use an invention against the patentee’s wishes -- a difficulty that often implicates the first two factors of the traditional four-factor test. This historical practice, as the Court holds, does not entitle a patentee to a permanent injunction or justify a general rule that such injunctions should issue. The Federal Circuit itself so recognized in Roche Products, Inc. v. Bolar Pharmaceutical Co., 733 F. 2d 858, 865–867 (1984). At the same time, there is a difference between exercising equitable discretion pursuant to the established four-factor test and writing on an entirely clean slate."
Kennedy wrote that "In cases now arising trial courts should bear in mindthat in many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases. An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees."
He continued that "For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent."
"When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test", wrote Kennedy.
He concluded that "The equitable discretion over injunctions, granted by the Patent Act, is well suited to allow courts to adapt to the rapid technological and legal developments in the patent system."
Robert Holleyman, P/CEO of the Business Software Alliance (BSA), stated in a release that "This decision is a clear victory for innovation and for consumers, and a defeat for patent trolls and others who are abusing the legal system. By giving courts greater latitude on whether or not to issue an injunction, we are making progress towards restoring much needed balance to the out-of-control patent litigation process. As Justices Kennedy, Stevens, Souter, and Breyer recognized, automatic issuance of injunctions enables unscrupulous persons to coerce unjustified licensing payments."
He added that "While we are encouraged by the Court's ruling, we believe Congress still has an important role to play in this debate and in restoring additional balance by addressing other aspects of the litigation system that are being abused."
Emery Simon, a BSA attorney, spoke in a telephonic news conference. He said that the BSA still wants the Congress to address patent damages, and the first inventor to file principle.
This case is eBay Inc., et al. v. Mercexchange, LLC, Sup. Ct. No.
05-130, a petition for writ of certiorari to the U.S. Court of Appeals for the
Federal Circuit, App. Ct. Nos. 03-1600 and 03-1616. Judge Bryson wrote the
opinion of the Court of Appeals, in which Judges Michel and Clevenger joined.
The Court of Appeals case is an appeal from the U.S. District Court for the
Eastern District of Virginia, Judge Jerome Friedman presiding. See also, Supreme